Washington–The Senate Banking Committee said it will hold a hearing next week to examine the functioning of the National Flood Insurance Program and how to improve it.
Andrew Gray, a spokesman for the committee, said the hearing next Wednesday will take a "structural look at the entire national flood insurance program."
He said it will examine such issues as whether the program is actuarially viable and whether claims are being paid on time. Although he said there is no specific legislation on the flood insurance program pending before the committee, he added that a bill could be drafted in the future.
That potential legislation could be based on the issues brought up by the witnesses before the panel. He said testimony could show how the government can work with insurers as it seeks to reform the National Flood Insurance Program, and how it must maintain oversight on insurers as they assess claims in the wake of Hurricane Katrina.
Mr. Gray said the committee is also interested in examining issues such as whether the flood insurance program is providing an incentive or a disincentive for homeowners to build in flood plains.
Robert Hartwig, chief economist at the Insurance Information Institute and a scheduled witness at the hearing, said he will touch upon these issues as part of his testimony.
Mr. Hartwig said that his comments will be addressing "things that the insurance industry does in the face of mega-disasters that perhaps the National Flood Insurance Program could learn from."
One of the main things insurers do, he said, is send "market-based signals" to property owners about the risks their properties are exposed to, typically through increased, actuarially-based rates. "That risk is not reflected in the rates for the National Flood Insurance Program," he added.
Mr. Hartwig also said he would point out contrasts between the way the government has worked in the aftermath of a disaster and the response of the industry, which he noted has "a history of responding to disasters quite efficiently, and with relatively few complaints."
However, J. Robert Hunter, director of insurance for the Consumer Federation of America, plans to warn lawmakers to be wary of insurance industry practices.
Among the issues Mr. Hunter said he would be addressing is the ongoing question of wind- versus water-based claims.
The issue has drawn a great deal of attention as homeowners in the affected areas have found they cannot make a claim on their homeowners policy if the damage is judged to be from flooding, or that their rebuilding costs will exceed the $250,000 cap on claims covered by the National Flood Insurance Program.
Insurance companies are making the determinations of whether damages were caused by the hurricane winds or subsequent flooding, which is "clearly a conflict of interest," Mr. Hunter said.
"Every claim they find that's water-based saves them money," he added.
Instead, Mr. Hunter said he would press the committee members to have the General Accounting Office involved in monitoring the determinations made by insurance companies.
Other witnesses at the hearing will include representatives from the Federal Emergency Management Agency, General Accounting Office, National Oceanic and Atmospheric Administration, Center on Federal Financial Institutions, Association of State Floodplain Managers, and Professor Mark Browne, chair of the Department of Actuarial Science, Risk Management and Insurance at the University of Wisconsin in Madison.
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